Basis of Financial Statement Presentation and Significant Accounting Policies (Policies)
|6 Months Ended
Jun. 30, 2012
|Basis of Financial Statement Presentation and Significant Accounting Policies [Abstract]
|Nature of Operations and Organization
Nature of Operations and Organization
Trans Energy is an independent energy company engaged in the acquisition, exploration, development, exploitation and production of oil and natural gas.
Its operations are presently focused in the State of West Virginia.
|Principles of Consolidation
Principles of Consolidation
The consolidated financial statements include Trans Energy and its wholly-owned subsidiaries, Prima Oil Company, Inc., Ritchie County Gathering Systems, Inc., Tyler Construction Company, Inc, and Tyler
Energy, Inc. All significant inter-company balances and transactions have been eliminated in consolidation. During the quarter, we contributed assets to a new subsidiary called American Shale Development, Inc. See Note 6.
|Use of Estimates
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The
Company’s financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion, amortization and impairment of oil and gas properties,
and timing and costs associated with its asset retirement obligations. Reserve estimates are by their nature inherently imprecise.
Financial instruments that potentially subject the Company to a concentration of credit risk include cash. At times, amounts may exceed federally insured limits and may exceed reported balances due to
outstanding checks. Management does not believe it is exposed to any significant credit risk on cash.
Accounts receivable and notes receivable are carried at their expected net realizable value. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific
customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due
to us could be overstated, which could have a negative impact on operations. No allowance for doubtful accounts is deemed necessary at June 30, 2012 and December 31, 2011 by management and no bad debt expense was incurred during the six
months ended June 30, 2012 and 2011.
In connection with obtaining new financing in April 2012, we incurred $1,707,071 in fees during the second quarter of 2012. These fees were recorded as financing costs and are being amortized over the
life of the loan using the straight-line method. Amortization of financing cost for the six months ended June 30, 2012 and 2011 were $331,244 and $237,500, respectively. Fully amortized financing costs on prior debt have been written off.
|Asset Retirement Obligations
Asset Retirement Obligations
The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, these
obligations include dismantlement, plugging and abandonment of oil and gas wells and associated pipelines and equipment. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The liability is
accreted to its then present value each period, and capitalized costs are depleted over the estimated useful life of the related asset.
At June 30, 2012, the Company had net operating loss carry forwards (NOLS) for future years of approximately $9,860,000. These NOLS will expire at various dates through 2030. The current tax
provision is -0- for the six months ended June 30, 2012 due to a net operating loss for the period. No tax benefit has been recorded in the consolidated financial statements for the remaining NOLs or AMT credit since the potential tax benefit
is offset by a valuation allowance of the same amount. Utilization of the NOLs could be limited if there is a substantial change in ownership of the Company and is contingent on future earnings.
The Company has provided a valuation allowance equal to 100% of the total net deferred asset in recognition of the uncertainty regarding the ultimate
amount of the net deferred tax asset that will be realized.
|Commitments and Contingencies
Commitments and Contingencies
The Company operates exclusively in the United States, entirely in West Virginia, in the business of oil and gas acquisition, exploration, development, exploitation and production. The Company operates in
an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability
to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic
conditions. The Company’s ability to expand its reserve base and diversify its operations is also dependent upon the Company’s ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various
federal, state and local governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict
what effect, if any, current and future regulations may have on the results of operations of the Company.
|Revenue and Cost Recognition
Revenue and Cost Recognition
Trans Energy recognizes gas revenues upon delivery of the gas to the customers’ pipeline from Trans Energy’s pipelines when recorded as received by the customer’s meter. Trans Energy
recognizes oil revenues when pumped and metered by the customer. Trans Energy recognized $4,909,344 and $5,253,094 in oil and gas revenues for the six months ended June 30, 2012 and 2011, respectively. Trans Energy uses the sales method to
account for sales and imbalances of natural gas. Under this method, revenues are recognized based on actual volumes sold to purchasers. The volumes sold may differ from the volumes to which Trans Energy is entitled based on our interest in the
properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. Trans Energy had no material imbalances as of June 30, 2012 and December 31, 2011.
Costs associated with production are expensed in the period incurred.
Revenue payable represents cash received but not yet distributed to
Transportation revenue is recognized when earned and we have a contractual right to receive payment. We recognized $187,688
and $245,043 of transportation revenue for the six months ended June 30, 2012 and 2011, respectively.